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2HRS2GO: Here lies a tale of woe

    This is not a true story, but as more startups look for IPO gold, you never know.

    The Tech Company founder and chairman shook his head in disbelief.

    "What happened?" asked Rich Wannabee, who started the Company a year ago with a dream of greenbacks floating on a sea of data packets. "We did everything right."

    Each of the board members stared at laptops showing a real-time chart of their stock price since going public a few days earlier. It reminded them of a corpse's heart monitor.

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    The recently hired CEO (a bright, energetic man recruited from the ranks of the Fortune 500 company where his dreams of Silicon Valley stardom were stifled by layers of corporate bureaucracy and a management team in no mood to let anyone into its inner circle of riches) glared as he sat in one of the padded chairs arranged around the oblong table that occupied the center of the glass-enclosed conference room. He was irritated by the thought of having to comfort the inexperienced Wannabee, who was young enough to overcome plenty of potholes on the road to the land of billion dollar market caps. On the other hand, the CEO was sufficiently along in years to view this as one of his last chances to retire on comfortable eight-figure nest egg.

    At that, the CEO found himself reviewing in his mind the pitch that convinced him to join the Company. He had loved the idea of bundling e-commerce security software with networking technology specifically designed to improve broadband wireless Internet connections to Linux servers. Friends in the investment community assured him Wall Street wouldn't be able to resist the combination of all their favorite buzzwords.

    That was good enough for the CEO, who saw his mission as a quick, simple offensive: push hard and fast to get the technology in testing at some big name partners, line up a couple of top investment banks, go public, and raise enough cash to keep the business going long enough to create a large, but attractive, acquisition candidate.

    The CEO's industry contacts proved invaluable in getting the Company's technology into the R&D labs of a couple of major wireless equipment makers, although researchers still hadn't quite gotten the power consumption low enough to be feasible in a remote access device. But it was just a matter of time, they assured him.

    In the meantime, the road show had gone extremely well -- all the fund managers were hot on the idea, especially with the raging successes seen by wireless and Linux stocks. The CEO pushed hard to speed up the rollout. In weeks leading up to the IPO, the Company announced partnerships with and investments from a large European wireless player and all the major Linux distributors, who were eager to get as many Linux applications out there as possible.

    The investment banks soon had a stable of institutional buyers lined up; if demand proved to be even half of what was suggested, the offering would be oversubscribed by several times over. When the week arrived, bankers talked about pushing the price aggressively, perhaps as high as $25 a share. The CEO rejected the idea of increasing the float, because he had a sneaking suspicion the Company would need a secondary offering fairly soon.

    Unfortunately, no one expected the balloon to deflate when it did.

    It all started when one of the wireless equipment makers warned of weak earnings -- on the morning of the company's IPO. The underwriting team pushed it back a couple of days to let the environment calm down, but things got worse: the next day Cisco announced a major investment in one of the Company's rivals. Then Microsoft announced a surprise early release for the next beta of Windows 2000, which caused Wall Street to wonder about the effects on Linux adoption.

    Institutional managers stopped returning phone calls from the Company's bankers. They cut back the price, to $10 a share. They crossed their fingers. But the Company couldn't abandon the IPO now, because it was too far down the road -- it was down to two weeks of cash.

    The result was inevitable, although some of the board had hoped to see a boost in days after the IPO. But the news media's stories about "picky IPO investors" and a "slow market" had poisoned the atmosphere, so no one was buying.

    "Maybe if we just had some revenue, or at least a few customers actually shipping our product, we might have done better," piped up board member Lily Wilt.

    Everyone in the room turned away in disgust. The CEO again wondered why the Company had to have a token woman on the board, even if she was president of a consistently profitable media company.

    But he knew he had to pull the chairman out of his funk before it infected the rest of the operation. So the CEO wiped the furrows from his brow and put on a fatherly smile as he turned to the man who hired him to bring respectability to the Company.

    "Don't worry, this is just the market being the market," the executive said gently, as he put his hand on Wannabee's shoulder. "I still believe in the technology we've put together. We'll ride it out."

    With a sudden flourish, the CEO took out his pager/cell phone (a prototype that used his company's technology to speed up the download of HTML pages on the tiny LCD screen) and dialed the number for his voice mail. Perhaps the IPO hadn't worked out yet, but he still harbored hope of hearing back from other lifelines he had tossed out in recent weeks.

    He listened to the stream of messages. Then he smiled.

    "Rich, I have potentially good news, just heard from Lucent, they're interested in doing a strategic deal. A very strategic deal -- the kind that starts with a 'b' and ends with 'out'..."

    And the dancing resumed on the data packets of Wannabee's dreams.

    Other issues:

  • AppNet Systems
  • (Nasdaq: APNT) and Viant Corp. (Nasdaq: VIAN) CS First Boston analyst Mark Wolfenberger proclaims the triumph of new IT services providers such as these two companies, whose recent IPOs it happened to manage.

    "Momentum Atomic, Stock Way Too Cheap, 200% Upside" screams the headline of this morning's CS First Boston note upgrading Appnet to "Strong Buy" from a "Buy" rating. AppNet -- one of the few companies with a complete package for an e-commerce services market that's "on fire" -- is seeing growth far ahead of estimates, Wolfenberger says. The company's decision to concentrate e-commerce services at a few locations could boost earnings in the upcoming holiday season, especially because AppNet gets paid per transaction, rather than a flat fee.

    Viant isn't quite as e-commerce specific as AppNet, but it is IT services, and like AppNet, running ahead of forecasts. Wolfenberger now expects profits from AppNet this year, and from Viant next year.

    The combination of "profit" and "upside" was enough to cause an investor stampede on a day of little concrete news. But consider this: if you believe what Wolfenberger is saying, then you presumably accept his 12-month price targets of $40 and $55 for AppNet and Viant, respectively. And if you believe that, then there's little upside left after today's runup.

    Market indices were mildly positive as the trading week headed to conclusion. In mid-afternoon trading, the Nasdaq Composite Index was up 30.35 to 2882.37, the S&P 500 higher by 5.76 to 1353.42, and the Dow Jones Industrial Average up 5.38 to 11084.78. 22GO>